Vector Control is a small agency in a small building sandwiched between the Garden Grove Freeway and Haster Street. Its decidedly un-sexy job is to guard against vector-born diseases — the nasties that can spread to humans via rats, mosquitoes, birds and vermin. One of its busiest programs involves dumping mosquito-eating fish in abandoned pools.

So it needed a bit more room for its 54-or-so-employees — and it started renting offices in the nearby Haster Business Park back in 2005.

Not so strange, except for one thing: It prepaid rent on those offices … through 2018.

An $840,000 value — for which the district paid a discounted $690,000! That’s a savings of more than 20 percent — and, eventually, the pre-payments came with the right to have first crack at buying the property if it ever came up for sale.

Weird? A commercial-leasing expert at CRESCA Orange County said he had never heard of anything like that in his career, and said it sounded “way excessive and a little irresponsible.” Former district manager Goedhart said it was a good, smart business move, that allowed the Vector Control District grab a distressed neighboring property at a great price. More on all that here.

There’s some disagreement about whether the Vector Control board — a rather unwieldy bunch, made up of 35 representatives of local cities and the county — ever formally authorized this sort of thing. Goedhart briefed the board on the pre-payments — and the land owner’s growing financial distress — in confidential memos (which, we would have argued, should never have been marked confidential in the first place, as they are clearly matters of public interest and public record).

Fast forward to fall of 2010. Goedhart was gone. Haster Business Park was in default, spiraling toward foreclosure. Which could have meant the loss of Vector Control’s half-million-or-so pre-paid rent.

The Vector Control District had to think fast: Should it try to buy the property before the banks seized it? Should it wait until afterward and try to buy it at auction?

“Events surrounding this issue are changing daily,” said a report to the board in November 2010. “To date, District Counsel is working on obtaining an appraisal on the property and contacting the attorney who represents the bank involved with the process. A court date is set for November 12, which will give the current landlord the opportunity to pay off the properties debt and remove the default. Staff and District Counsel have plans to attend. If the landlord is successful in removing the default, he has expressed to staff that he is interested in selling the property immediately.”

And so it came to pass that Vector Control entered negotiations for the property at 12882-12928 Haster St. with Park LLC, and on Jan. 25, 2011, purchased the Haster Business Park for $3,775,000, according to property records.

It had a “purchase credit” of $527,000 from the pre-paid rent. The rest it paid in cash.

The district’s entire annual budget is about $11 million, to give you a sense of scope.

Laguna Niguel’s Robert Ming was one of the few who voted against it. “I know how this works — if you get property and space you’re going to expand,” Ming said. “I’ve been advocating analyzing what we’re doing and why we’re doing it, and finding ways to get smaller, and not bigger. At the end of the day, I was willing to give up that credit, but a lot of other people didn’t want to walk away from that money.”

There were calls for an investigation, and outside counsel, and forensic audits — but in the end, the district just decided to get on with things.

It has revamped policy so that the general manager can not pre-pay for rent again. But in the end, if you had to be forced to buy a property, at least it was a pretty good time for that, said General Manager Mike Hearst. It had appraised in excess of $4 million at one point.

And while being a landlord is fairly common among special districts — several water districts own office buildings that rent space, and one owned retail property, and Irvine Ranch owns an apartment complex which has turned a pretty penny as an investment — Hearst is not eager.

“When something breaks, we have to fix it, and fix it right, and at prevailing wage,” he said. “We’d like to convert the site to something that suits us, particularly in the education area, a place for school kids and the public to come and see demonstrations — how to rat-proof a house, how to have a water feature without producing mosquitoes, that sort of thing.”

It’ll have to wait until the newly-renegotiated three-year leases for the tenants are up, however.

We’ll also point out that the cash the district used had been in the state investment pool, where it was earning an anemic half-percent interest. It’s hard to imagine it will do worse sunk into real estate.

But the question can rightfully be raised: If special districts have enough cash sitting around to invest in real estate, might they be collecting too much money?

The board was certainly not completely in the dark on the prepayments. Hearst provided us this excerpt from the meeting minutes of April 15, 2010:

Trustee Murray: I have a quick question regarding the budget. In the budget there is an area where we pay out for facility lease. I just wanted to know about the advance, the Property Rental Agreement, because I believe there is some significant cost savings there and just for the record. Could you comment on that Kelly?

Kelly Price : Absolutely. As the Trustees know we do lease three suites in the adjacent business park right here. Over the course of the past year and a half or so, we have released advanced payments to the property owner, per his request, on advancing fiscal years through the contract with both. All three suites will end their contract in 2018. Every time an advance was cut, we did demand a hefty discount in order to do so for the property owner. So, to date, all three suites are paid up through 2018 and we have received a total of $150,334 in discounts for releasing those advance payments. The property owner has foregone just about $56,000 on advancing the two back suites and about $95,000 in advancing himself on the front suite. How we do it as far as the books are concerned, is we do cut the check. So we were cutting the check off of an expense account as far as the financial system goes, and every year we journal entry in just that particular fiscal year payment, which is what you are seeing as a line item in the budget. The Trustees, through 2018, will continue to see that line item receive activity, but it is through a journal entry. If any Trustee is interested in more detail, we can print the detail off of the financial system.

Sforza birthed the Watchdog column for The Orange County Register in 2008, aiming to keep a critical (but good-humored) eye on governments and nonprofits, large and small. It won first place for public service reporting from the California Newspaper Publishers Association in 2010. Sforza contributed to the OCR's Pulitzer Prize-winning investigation of fertility fraud at UC Irvine, covered what was then the largest municipal bankruptcy in America‘s history, and is the author of "The Strangest Song," the first book to tell the story of a genetic condition called Williams syndrome and the extraordinary musicality of many of the people who have it. She earned her M.F.A. from UCLA's School of Theater, Film and Television, and enjoys making documentaries, including the OCR's first: "The Boy Monk," a story that was also told as a series in print. Watchdogs need help: Point us to documents that can help tell stories that need to be told, and we'll do the rest. Send tips to watchdog@ocregister.com.

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